Lewis Lu and John Timpany of KPMG discuss the Securities and Futures Commission’s subsidy scheme for OFCs and REITs in Hong Kong SAR.
The Securities and Futures Commission (SFC) announced on May10 2021 the implementation of the Hong Kong SAR government’s grant scheme to subsidise the set-up of open-ended fund companies (OFC) and real estate investment trusts (REIT).
Effective from May10 2021 to May 9 2024, subject to a government funding cap for the scheme, the subsidy will offer a rebate of 70% of all professional expenses that are paid to Hong Kong-based service providers, with certain restrictions.
The subsidy, however, is subject to a cap of HK$1 million (US$128,739) per OFC, and HK$8 million (US$1.03 million) per REIT in Hong Kong SAR. This is one of many recent initiatives that will further enhance Hong Kong SAR’s competitiveness as the leading asset management hub in Asia.
OFCs
The subsidy will cover 70% of professional fees accrued by managers establishing companies in, or re-domiciling companies to, Hong Kong SAR and which become registered as an OFC, subject to a cap of HK$1 million per OFC. There is a limit of three OFCs per investment manager who can claim this benefit.
The types of fees for which expenditure may be reimbursed under the subsidy include legal fees for the preparation of incorporation including any fees incurred in drafting legal documents and offering documents; accounting and tax advisor fees; and fees charged by fund administrators, company secretaries, corporate service providers and regulatory consultants relating to the incorporation/redomiciling of OFCs. The subsidy will also cover listing agent fees incurred for listed OFCs.
The subsidy will not apply to newly set up sub-funds under an existing OFC structure.
REITs
This scheme applies to SFC authorised REITs listed on the Stock Exchange of Hong Kong (SEHK) with a minimum market capitalisation of HK$1.5 billion at the time of listing. These REITs can then claim up to 70% of the professional fees paid to local Hong Kong SAR service providers, up to a cap of HK$8 million per REIT.
The types of expenses that are covered by this subsidy for REITs are similar to those covered for OFCs. This include:
* Underwriting commissions;
* Legal fees for the preparation of listing (including any offering documents and work done in relation to have the REIT authorised by the SFC);
* Accountant and tax advisor fees;
* Fees charged by fund administrators, company secretaries, corporate service providers relating to the incorporation/redomiciling of REITs;
* Valuation reports; expenses for advertising and marketing the listing of the REIT; and
* Listing fees for any listing agents required for the listing of the REIT.
Observations
The scheme will not cover any registration or license fees paid to the SFC, nor will it cover audit fees paid to accounting firms for annual audits.
Applications for this subsidy will be considered on a case-by-case, first-come first-served basis. For private OFCs, the application must be lodged within three months from the date the Registrar of Companies issues the certificate of incorporation or certificate of re-domiciliation.
For REITs, the application must be made within three months of the REIT’s listing date. The subsidy is, however, subject to a two-year claw back should the OFC move away from Hong Kong SAR or the REIT delist from the SEHK.
The scheme is a targeted initiative and the financial impact should prove meaningful. Following other initiatives such as the limited partnership fund regime and carried interest tax concession, the government is reinforcing Hong Kong SAR’s status as an international asset and wealth management centre by enhancing its tax framework to encourage investment funds to ‘onshore’ in Hong Kong SAR.